Norway's remarkable success story has sparked curiosity and debate, especially regarding its unique approach to resource taxation. With a population of just over 5 million, this small Nordic nation has achieved an enviable standard of living, largely funded by its massive sovereign wealth fund. But how did they do it, and what can other countries, like Australia, learn from their example?
The fund, valued at a staggering $US2.144 trillion, has generated impressive profits, with a recent quarter alone yielding $US102.56 billion. This success is attributed to strategic investments in various sectors, including basic materials, telecommunications, and the financial industry.
But here's where it gets controversial: Norway's wealth is deeply intertwined with its natural resources, particularly oil. Almost a quarter of its national budget is funded through this sovereign wealth fund, which started with oil revenues.
Norway's approach to higher education is also noteworthy. It's one of the few OECD nations offering completely free higher education, and it spends generously on services like health and education, more so than many other developed nations.
The key to their success lies in their taxation strategy. Since the mid-1990s, Norway has imposed a 56% 'special tax' on oil and gas companies, alongside a 22% corporate tax rate. The proceeds from these taxes have been reinvested into their sovereign wealth fund, which has grown to become the largest in the world.
Norway's Prime Minister, Jonas Gahr Støre, described the fund as a way to transfer the nation's natural wealth into a financial mechanism for future generations.
In contrast, Australia's sovereign wealth fund, the Future Fund, lags behind, ranking around 16th globally, behind nations like Norway, Qatar, and Saudi Arabia.
Australia's Petroleum Resource Rent Tax (PRRT), introduced in the late 1980s, applies only to profits from the sale of specific petroleum products and doesn't cover other minerals like iron ore and coal. Despite recent changes, the tax has been criticized as 'broken', with forecasts suggesting it will raise less than initially expected.
During the global energy crisis following Russia's invasion of Ukraine, countries like Norway saw significant increases in tax revenue from their resources. In 2022, Norway collected about $US89.5 billion, almost three times the previous record.
Economists like Richard Denniss from the Australia Institute argue that it's not too late for Australia to improve its returns on national resources. A recent study by the think tank found that Australians paid significantly more on HECS repayments than gas companies did on the PRRT in the 2023-24 financial year.
Could Australia learn from Norway's approach and implement more targeted resource taxes to boost investment in critical minerals?
In late October, the US and Australia agreed on an $US8.5 billion critical minerals deal, and governments have invested billions in critical mineral developments since 2019. However, some interventions, like bailouts for metal facilities, have been criticized for not sharing the risk effectively.
University of Sydney's Lian Sinclair, a specialist in critical minerals, argues that while some interventions are necessary, the state is accepting all the downside risk without reaping much of the potential upside.
University of New South Wales economist Richard Holden believes the rules of global trade and economics have shifted, with countries like China and the US exerting power through strategic moves like cornering markets and using tariffs as political tools.
Professor Holden criticizes the Commonwealth's interventions, arguing that they haven't struck the right balance. The federal government has emphasized the need to 'value add' Australian resources, but Holden questions this strategy, suggesting that Australia should focus on competitive manufacturing rather than occupying the entire supply chain.
Dr Sinclair, on the other hand, proposes a different approach to 'value adding', suggesting that Australia could refine critical minerals, similar to the refining of natural gas into LNG. She cites the example of refineries in Western Australia attempting to mine spodumene and refine it into lithium hydroxide, which would significantly increase Australia's export value.
As government investment in the industry grows, Dr Sinclair warns against not maximizing returns, emphasizing the need to ensure that the state and the public receive a fair share of the profits.
So, what's your take on this? Do you think Australia could learn from Norway's approach to resource taxation and investment? Share your thoughts in the comments!
